The following information is included for convenience only. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles (“GAAP”). EBITDA, adjusted EBITDA, EBITDA margin, cash flow prior to working capital changes and free cash flow are not measures of financial performance (nor do they have standardized meanings) under either Canadian GAAP or US GAAP. In evaluating these measures, investors should consider that the methodology applied in calculating such measures may differ among companies and analysts.
The company uses both GAAP and certain non-GAAP measures to assess performance. The company’s management believes these non-GAAP measures provide useful supplemental information to investors in order that they may evaluate PotashCorp’s financial performance using the same measures as management. PotashCorp’s management believes that, as a result, the investor is afforded greater transparency in assessing the financial performance of the company. These non-GAAP financial measures should not be considered as a substitute for, nor superior to, measures of financial performance prepared in accordance with GAAP.
Set forth below is a reconciliation of “EBITDA” and “adjusted EBITDA” to net income, the most directly comparable financial measure calculated and presented in accordance with Canadian GAAP.
| Three Months Ended December 31 |
Twelve Months Ended December 31 |
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| 2009 | 2008 | 2009 | 2008 | |||||
| Net income | $ | 243.6 | $ | 788.0 | $ | 987.8 | $ | 3,495.2 |
| Income taxes | 45.9 | 66.8 | 83.5 | 1,077.1 | ||||
| Interest expense | 40.1 | 20.6 | 120.9 | 62.8 | ||||
| Depreciation and amortization | 84.6 | 80.4 | 312.1 | 327.5 | ||||
| EBITDA | 414.2 | 955.8 | 1,504.3 | 4,962.6 | ||||
| Provision for auction rate securities | - | 17.5 | (115.3) | 88.8 | ||||
| Adjusted EBITDA | $ | 414.2 | $ | 973.3 | $ | 1,389.0 | $ | 5,051.4 |
EBITDA is calculated as earnings before interest, income taxes, depreciation and amortization. Adjusted EBITDA is calculated as earnings before interest, income taxes, depreciation and amortization, certain gains and losses on disposal of assets, and certain impairment charges. PotashCorp uses EBITDA and adjusted EBITDA as supplemental financial measures of its operational performance. Management believes EBITDA and adjusted EBITDA to be important measures as they exclude the effects of items which primarily reflect the impact of long-term investment decisions, rather than the performance of the company’s day-to-day operations. As compared to net income according to GAAP, these measures are limited in that they do not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues in the company’s business, or the non-cash charges associated with impairments and certain gains and losses on disposal of assets. Management evaluates such items through other financial measures such as capital expenditures and cash flow provided by operating activities. The company believes that these measurements are useful to measure a company’s ability to service debt and to meet other payment obligations or as a valuation measurement.
Set forth below is a reconciliation of “cash flow prior to working capital changes” and “free cash flow” to cash provided by operating activities, the most directly comparable financial measure calculated and presented in accordance with Canadian GAAP.
| Three Months Ended December 31 |
Twelve Months Ended December 31 |
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| 2009 | 2008 | 2009 | 2008 | ||||||
| Cash flow prior to working capital changes (1) | $ | 503.5 | $ | 1,250.7 | $ | 1,350.9 | $ | 3,780.7 | |
| Changes in non-cash operating working capital | |||||||||
| Accounts receivable | 0.2 | 183.1 | 53.1 | (593.7) | |||||
| Inventories | 17.7 | 36.1 | 88.2 | (324.4) | |||||
| Prepaid expenses and other current assets | 30.4 | 10.4 | 21.2 | (23.7) | |||||
| Accounts payable and accrued charges | 16.3 | (315.4) | (589.5) | 174.3 | |||||
| Changes in non-cash operating working capital | 64.6 | (85.8) | (427.0) | (767.5) | |||||
| Cash provided by operating activities | $ | 568.1 | $ | 763.3 | $ | 923.9 | $ | 3,013.2 | |
| Additions to property, plant and equipment | (573.6) | (427.7) | (1,763.8) | (1,198.3) | |||||
| Other assets and intangible assets | (18.0) | (13.5) | (54.1) | (46.6) | |||||
| Changes in non-cash operating working capital | (64.6) | 85.8 | 427.0 | 767.5 | |||||
| Free cash flow (2) | $ | (88.1) | $ | 407.9 | $ | (467.0) | $ | 2,535.8 | |